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May 24, 2022

Genuine Transactions with suppliers whose registration has been cancelled after the transaction cannot be denied ITC.

by CA Shivam Jaiswal in Income Tax

Genuine Transactions with suppliers whose registration has been cancelled after the transaction cannot be denied ITC.

Facts and Issue of the case

These writ petitions have  been  filed  by  the petitioners being aggrieved by the action of the respondent GST concerned denying the  benefit  of  Input  Tax  Credit (ITC) by their impugned order dated 27th December, 2021 to the petitioner on purchase of the goods in question from the suppliers and asking the petitioners to pay the penalty and interest under the relevant provisions  of  GST  Act,  on the ground that  the  registration  of  the  suppliers  in question has already been  cancelled  with  retrospective effect covering the  transaction  period  in  question. Petitioner has also challenged the impugned orders dated 29th March, 2022 and 30th March, 2022 respectively being Annexure P-10 to the writ petition,  under  Section  79(1)(c) of the WBGST Act.

The main contention of the petitioners in these writ petitions are that the transactions in question are  genuine and valid by relying upon all the supporting relevant documents required  under  law  and  contend  that petitioners with their due diligence have verified the genuineness and identity of the suppliers in question and more particularly the names  of  those  suppliers  as registered taxable  person  were  available  at  the Government portal showing their registrations as valid and existing at the time of transactions in question  and petitioners submit that  they  have  limitation  on  their  part in ascertaining the  validity  and  genuineness  of  the suppliers in question  and  they  have  done  whatever possible in this regard  and  more  so,  when  the  names  of the suppliers as a registered taxable person were already available with the Government record and in Government portal at the relevant period  of  transaction,  petitioners could not be faulted if the suppliers appeared  to  be  fake later  on.  Petitioners  further  submit  that  they  have  paid the amount of purchases in question as well as tax on the same not in cash and all transactions were  through  banks and petitioners are helpless if at some  point  of  time  after the transactions were over, if the respondents concerned finds on enquiries that the aforesaid suppliers (RTP) were fake and bogus and on this basis petitioners could not be penalised unless the department/respondents establish with concrete materials that the transactions in question were the outcome of any collusion between the petitioners/purchasers and the suppliers in question. Petitioners further submit that all the purchasers in question invoices-wise were available on the GST portal in form GSTR-2A which are matters of record.

Observation of the court

Considering the facts as recorded, without any further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering into the transactions in question and that there was no verification of the genuineness of the suppliers in question by the petitioner during the relevant period.
Petitioners in support of their contention have relied on unreported judgment of this Court dated 13th December, 2021 in a similar case in the case of M/s. LGW Industries Limited & Ors. Vs. Union of India & Ors. in

W.P.A No.23512 of 2019.

Considering the submission of the parties and on perusal of records available, these writ petitions are disposed of by setting aside the aforesaid impugned orders and remanding these cases of the petitioners to the respondents officer concerned to consider afresh on the issue of their entitlement of benefit of input tax credit in question by considering the documents  which  the petitioners intend to rely in support of their claim of genuineness of the transactions in question and the respondent concerned shall also consider as to whether payments on purchase in question along with GST were actually paid or not to the suppliers (RTP) and also to consider as to  whether  the  transactions  and  purchases were made before or after the cancellation of registration of the suppliers and also to consider as to compliance of statutory obligation by the petitioners in verification of identity of the suppliers (RTP).

If it is found upon verification and considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration of those suppliers and after taking into consideration as to whether facts of the petitioners are similar to the judgements of the Supreme Court and various High Courts and of this Court upon which petitioners intend to rely and if it is found similar to the present case in that event the petitioners shall be given the benefit of input tax credit in question. These cases of the petitioner shall be disposed of by the respondents concerned in accordance with and in the light of observation made above and by passing a reasoned and speaking order after giving effective opportunity of hearing to the  petitioners,  within  eight  weeks  from  the date of communication of this order.


The court disposed of the petition filed by the petitioner.


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